Black & Decker 2010 Annual Report Download - page 24

as stock-based compensation expense. The adjustments to interest expense and EBITDA for purposes
of this interest coverage ratio computation are defined in the debt agreements included as
Exhibits 10.1, 10.2(a), 10.2(b) and 10.2(c) of this Form 10K. The ratio required for compliance is 3.5
EBITDA to 1.0 Interest Expense and is computed quarterly, on a rolling twelve months (last twelve
months) basis. Under this covenant definition, the interest coverage ratio was approximately 11 times
EBITDA or higher in each of the 2010 quarterly measurement periods. Management does not believe
it is reasonably likely the Company will breach this covenant. Failure to maintain this ratio could
adversely affect further access to liquidity.
Future instruments and agreements governing indebtedness may impose other restrictive conditions or
covenants. Such covenants could restrict the Company in the manner in which it conducts business and
operations as well as in the pursuit of its growth and repositioning strategies.
The Company is exposed to counterparty risk in its hedging arrangements.
From time to time the Company enters into arrangements with financial institutions to hedge exposure to
fluctuations in currency and interest rates, including forward contracts and swap agreements. The failure of
one or more counterparties to the Company’s hedging arrangements to fulfill their obligations could adversely
affect the Company’s results of operations.
The Company’s results of operations could be negatively impacted by inflationary or deflationary economic
conditions which could affect the ability to obtain raw materials, component parts, freight, energy, labor
and sourced finished goods in a timely and cost-effective manner.
The Company’s products are manufactured using both ferrous and non-ferrous metals including, but not
limited to steel, zinc, copper, brass, aluminum and nickel, and resin also represents a significant commodity
used in production. Additionally, the Company uses other commodity-based materials for components and
packaging including, but not limited to: plastics, wood, and other corrugated products. The Company’s cost
base also reflects significant elements for freight, energy and labor. The Company also sources certain finished
goods directly from vendors. If the Company is unable to mitigate any inflationary increases through various
customer pricing actions and cost reduction initiatives, its profitability may be adversely affected.
Conversely, in the event there is deflation, the Company may experience pressure from its customers to reduce
prices; there can be no assurance that the Company would be able to reduce its cost base (through negotiations
with suppliers or other measures) to offset any such price concessions which could adversely impact results of
operations and cash flows.
Further, as a result of inflationary or deflationary economic conditions, the Company believes it is possible
that a limited number of suppliers may either cease operations or require additional financial assistance from
the Company in order to fulfill their obligations. In a limited number of circumstances, the magnitude of the
Company’s purchases of certain items is of such significance that a change in established supply relationships
with suppliers or increase in the costs of purchased raw materials, component parts or finished goods could
result in manufacturing interruptions, delays, inefficiencies or an inability to market products. An increase in
value-added tax rebates currently available to the Company or to its suppliers, could also increase the costs of
the Company’s manufactured products as well as purchased products and components and could adversely
affect the Company’s results of operations.
Tight capital and credit markets could adversely affect the Company by limiting the Company’s or its
customers’ ability to borrow or otherwise access liquidity.
The Company’s growth plans are dependent on, among other things, the availability of funding to support
corporate initiatives and complete appropriate acquisitions and the ability to increase sales of existing product
lines. While the Company has not encountered financing difficulties to date, the capital and credit markets
experienced extreme volatility and disruption in late 2008 and in early 2009. Market conditions could make it
more difficult for the Company to borrow or otherwise obtain the cash required for significant new corporate
initiatives and acquisitions. In addition, there could be a number of follow-on effects from such a credit crisis
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